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Investors give snow-hit pub sector a miss

Even after a few glorious sun-kissed days of al-fresco drinking and dining, there remains a chill in the air for pub giants Mitchells & Butlers (MAB) and Marston's (MARS).

Their shares fell sharply today as the City looked back two months to count the costs of the Beast From the East, which shut some pubs and dealt an unwelcome blow to an industry already struggling on leaner margins.

Mitchells, which has 1,700 pubs and restaurants, believes the snow cost it £12 million and meant like-for-like sales were up 1.6% in the 28 weeks to April 14 rather than the 2.5% estimated without disruption. The heaviest snowfall came on Sundays when chains such as Toby Carvery are usually at their busiest.

The profits impact was estimated at £8 million, partly due to added costs from wasted food and building repairs. That's a significant sum for an industry in which consumer discretionary income is under pressure and cost inflation remains a significant headwind.

It's not ideal either for shareholders still hopeful that Mitchells will have room to announce a full-year dividend later this year. As expected, no pay-out was awarded alongside today's interim results as management want to wait to assess full-year trading and the outlook for the sector.

For now, Mitchells says the priority is to maintain the condition and competitiveness of the existing pub and restaurants estate.

Source: interactive investor Past performance is not a guide to future performance

In contrast, Marston's continues to pay a dividend. It wasted no time in telling investors this fact in the top two lines of today's interim results, with the half-year pay-out of 2.7p a share in line with a year earlier.

Chief executive Ralph Findlay also struck an upbeat tone when he spoke to interactive investor after announcing a 20% rise in underlying revenues to £528.1 million and pre-tax profits up 8% to £36.3 million.

It's clear that Marston's broader spread of operations has helped insulate it to some extent, with the impact of weather on drive-to pubs offset by better trading in its brewing arm and leased pubs. Findlay puts the like-for-like sales impact of the snow at between 1.5% and 2%, with profits taking a £3 million hit.

Despite the industry's mood of caution, Findlay says that consumers are still spending more in the UK. The challenge is that there is more competition for that growth.

What matters now is the outlook for consumer confidence, particularly if pay figures continue their recent trend of growing above the rate of inflation.

There's also a World Cup to look forward to, which should help comparisons with what was a disappointing summer last year. Findlay adds: "It's obviously a good thing if England progress, but even if the worst happens, the matches are on at a good time which is a positive for us."

Despite today's share price slump - driven by downward revisions to forecasts in the wake of the weather blow - many analysts continue to hold a positive stance on Marston's.

Source: interactive investor Past performance is not a guide to future performance

JP Morgan Cazenove lowered its price target by 5p to 125p but said it remains overweight on the stock due to a 7% dividend yield and the outcome of a recent estate revaluation showing a net asset value of 142p a share.

Numis Securities also pointed out that Marston's trades on an undemanding FY18 price earnings multiple of 8.0x.

Analyst Tim Barrett said: "It is differentiated from peers by its growth in brewing whereby synergies/integration should support earnings but shares similar cost headwinds to others in its managed pub estate."

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